Japan hedge fund returns assets to clients | FT

The lack of liquidity on Japan's stock markets has forced one of the largest hedge funds in Japan to return over half of its assets under management to its clients.

The Penta Japan Fund, which has operated in Japan for five years, has reduced assets under management from around $900m to $420m......

......the withdrawal or scaling back of the operations of a number of mid-sized foreign investment banks in recent months.

The investment banks' decisions were linked to a lack of primary and secondary market business, lacklustre merger and acquisition activity, depressed home markets and, in some cases, concerns over the state of financial regulation.

......the value of trading on the Tokyo Stock Exchange was around Y480bn ($4bn) compared with about Y750bn one year ago. "It has been trending down for the last couple of years," John Zwaanstra, who runs the Penta Japan fund, said.

......opportunities for hedge fund managers remained, in Japan, but added the lack of liquidity meant running a sizeable fund was becoming increasingly difficult. "It was getting unwieldy. We were getting in our own way," he said.

The lack of liquidity has a particular impact upon larger hedge funds. They derive fees largely from performance as well as a small management fee. "You have to ask at what stage the assets under management affect the performance fee."